What is revenue management in hotels?

Revenue management is a set of practices to maximize returns. In terms of the hospitality industry, revenue management entails finding the right clients for the right room and selling it at the right moment. To achieve this complex goal, hoteliers break the problem into four main problem areas:

Customer segmentation – understanding the groups of customers, their requirements, price expectations, and booking patterns. For example, business travelers are more likely to book alone, they don’t care much about price, and may resort to last minute bookings. Leisure travelers, on the other hand, are likely to book in advance, be looking for cheaper rooms and may be traveling as a couple and their children.

Demand forecasting – the name is pretty self-explanatory. Hoteliers look at the past demand numbers to predict future demand. E.g. there’s a higher demand for our rooms in July than in October unless there’s a football match in our city.

Yield management – finding the best price that would both allow you to sell all rooms and sell the right rooms at the highest price possible.

Dynamic pricing – a rather advanced technique of regularly changing prices depending on the demand at the moment to sell the room at a higher price. It’s usually solved with machine learning algorithms that consider multiple factors impacting the demand. For instance, we may increase the price if the weather is good and most hotels around look fully booked.

These problem areas and their solutions aren’t siloed. You would normally approach them simultaneously to improve gains. So things may get a bit complex and require active investments in IT, channel management (finding the best place to sell rooms), improving and selling ancillaries like food, transportation, or spa, and better managing overbookings (when the same room is booked twice). We’ve explained revenue management in more detail in our article, so check it out if you want to learn more.